INTERNATIONAL  INSTITUTE  OF  AGRICULTURE 


THE  LANDSCHAFT 


Co=operative  Rural  Credit. 


Addenda  to  the  35,000  Edition  of  September  14,  1913. 

BY 

DAVID  IvUBIN 


To  the  Reader. 


The  publications  of  the  International  Institute  of  Agriculture  familiar- 
zed  the  American  people  with  the  workings  of  the  European  cooperative 
ural  credit  systems,  and  chis  led  to  the  following  events : 

First : the  Nashville  Conference,  under  the  auspices  of  the  Southern 
-ommercial  Congress. 

Second  : the  rural  credit  plank  in  the  platforms  of  the  three  political 
arties  during  the  late  presidential  campaign. 

Third:  The  instruction  to  the  diplomatic  officers  in  Europe  toinvesti- 
ate  and  report  on  the  subject. 

Fourth  : the  comprehensive  report  b3^  Ambassador  Herrick. 

Fifth : the  favorable  stand  taken  by  Ex-President  Taft  in  his  letter 
o the  Governors. 

Sixth  : the  investigation  hi  the  European  countries  by  the  American 
Commission  and  the  United  States  Commission. 

Seventh : the  stand  by  President  Wilson. 

The  New  York  “ Evening  Post  ” of  August  13th.  sa^^s  : “ President 
Vilson,  in  a statement  issued  to  day,  pledged  his  administration  to  secure 
y legislation  a rural  credit  s^^stem  for  the  benefit  of  the  farmers  of  the 
Jnited  States.  The  President  says  : 

“ There  is  no  subject  more  important  to  the  welfare  of  the  industrial  development  of 
re  United  States;  there  is  no  reform  in  which  I would  myself  feel  it  a greater  honor 
privilege  to  take  part  because  I should  feel  that  it  was  a serv’ce  to  the  whole  coimtry 
the  first  magnitude  and  significance...  This  is  otir  next  great  task  and  duty.” 


2 


Mixing  op  Systems. 

Pending  the  report  to  be  made  by  the  American  Commission,  Senator 
Fletcher  introduced  in  the  Senate  a measure  (S.  2909,)  embracing  a plan 
for  local  rural  banks,  State  rural  banks,  and  a National  Rural  Bank  of 
the  United  States  of  America. 

Shortly  after  introducing  his  bill,  Senator  FJ etcher  asked  me  for  com- 
ments and  criticisms  on  the  same.  These  are  contained  in  m}^  booklet 
“ The  Uandschaft  ” of  September  14th,  to  which  these  pages,  covering 
subsequent  correspondence,  are  an  addenda. 

In  reviewing  Senator  Fletcher’s  bill  I pointed  out,  first,  that  in  its 
provisions  it  is  ecclectic,  embracing  points  taken  from  almost  all  the  rural 
credit  systems  of  Europe,  and,  second,  that  such  ecclecticism  is  contrary  to 
the  spirit  and  intent  of  those  systems  as  shown  by  their  mode  of  operation 
in  the  European  countries.  The  bill,  for  instance,  combines  under  one 
system  personal  credit  and  land  mortgage  bond  credit,  although  European 
expeT'ience  has  shown  that  such  combinations  are  impracticable. 

The  next  point  which  presents  itself  is  this  : shall  the  proposed  rural 
banks  be  mutual  banks,  farmers  cooperative  banks,  or  shall  they  be  profit- 
earning, joint-stock  banks? 

It  was  shown  that  there  are  objections  to  both  these  alternatives  ; 
that  farmers,  on  the  one  hand,  have  not  the  requisite  technical,  financial 
experience  to  run  complicated  and  far-reaching  mutual  banks  ; and  on  the 
other  hand,  that  joint  stock  farm  mortgage  banks  for  profit  present  the  two 
following  serious  objections  : 


The  New  Trust. 

First:  the  danger  in  attempting  to  do  a land-mortiage  business  over 
an  extensive  area,  is  aptly  pointed  out  by  a former  Secretary  of  the 
Treasury,  who,  speaking  of  the  disastrous  experience  with  land-mortgage 
banks  of  thirty  years  ago,  says  they  " became  foolish  enough  to  think 
that  they  could  loan  in  half  a dozen  States  whithout  beiirg  misled  by 
agents  ”.  As  a result  they  were  compelled  to  back  up  their  loans  by  a 
series  of  guarantees. 

Second : supposing  these  banks  overcome  the  difficulties  in 
the  way,  is  there  not  a danger  that  wffien  once  a series  of  profit- 
earning  mortgage  banks  would  succeed  in  planting  themselves  firmly  in  the 
field,  that  they  would  soon  find  it  profitable  to  merge  their  interests  under 
one  directorate  ? And  should  this  take  place  would  not  a new^  trust  then  be 
born  in  the  United  States  fraught  with  graver  menace  to  the  well-being  of 
the  American  people  than  any  other  trust  now  existing  ? And  ii  so  could 
it  not  almost  be  predicted  with  certainty  that  such  a trust  would,  in  time, 
not  alone  dictate  the  rate  of  interest  and  the  conditions  of  the  loan,  but 
would  also  dictate  the  price  at  which  the  farmer  should  sell  his  product  ? 
Would  not  such  a trust  then  be  in  full  control  of  the  economic  life  of  the  ^ 


American  farmer,  and  ultimately,  also  of  the  law-making  powers  of  the 
nation?  These  are  the  dangers  to  be  guarded  against. 

What  the  American  farmer  should  have  is  a real  cooperative  rural 
credit  system,  and  I believe  the  best  system  for  that  purpose  would  be  the 
^ Tandschaft  as  in  operation  in  Germany. 

The  farmer  as  borrower  through  the  Tandschaft  is  seldom  if 
ever  forclosed,  for,  though  the  Landschaft  has  the  right  to  forclose  without 
recourse  to  the  courts,  it  is  a right  which  is  seldom  exercised.  Experience 
» in  Germany  has  shown  that  it  is  to  the  interest  of  the  Landschaft  to  aid 
an  unfortunate  member  with  advice,  direction,  and  mutual  assistance 
rather  than  to  foreclose  him.  But  so  long  as  it  is  to  the  interest  of  the  profit 
earning,  joint-stock  mortgage  bank  to  foreclose  would  it  hesitate  to  do  so 
promptly  ? 

During  the  past  decade  the  American  farmers  have  had  years  of  pros- 
perity, and  yet  the  United  States  Census  Report  shows  that  37  % of  the 
American  farms  are  now  worked  by  renters,  and  that  the  increase  in  tenancy 
during  the  past  ten  years  has  been  at  the  rate  of  16  %.  Let  the  same  ratio 
of  decrease  in  land-owning  farmers  continue  during  the  next  few  decades 
and  the  American  Republic  will,  in  substance,  have  ceased  to  exist;  it 
will  then  exist  in  name  only,  in  reality  it  will  be  dead. 

Be  it  remembered  that  the  factor  that  makes  liberal  government  pos- 
sible is  the  conservative,  for  he  serves  as  a check  on  the  demands  of  the  ra- 
dical. It  is  the  middle-path  between  the  radical  forces  on  the  one  hand,  and 
the  conservative  forces  on  the  other,  which  gives,  as  Confucius  says,  the 
golden  mean,  making  liberal  government  possible.  And  who  is  it  that  does 
not  know  that  the  radical  is  the  urban,  the  city-man,  whether  he  be  laborer 
or  whether  he  be  millionaire  ? 

And  the  conservative,  where  is  he  from  ? Where  but  from  the  country, 
from  the  farm;  he  is  the  land-owning  farmer.  This  indeed  is  he;  and 
note  well,  this  farmer,  this  conservative,  is  the  last  to  change  the  style 
of  his  garments,  the  mode  of  his  speech  or  his  line  of  thought,  his  belief 
or  his  prejudices.  But  for  all  that  he  has  his  value.  His  chief est  value 
consists  in  just  this  very  conservatism,  and  it  is  this  conservatism  which 
acts  as  a brake  holding  back  the  urban  radical.  His  service  in  the  be  dy  po- 
; litic  can  be  compared  to  the  service  of  the  governor  on  a boiler  and  engine. 
He  regulates  the  speed  and  controls  the  tension. 

But  when  is  the  rural  citizen  a conservative  ? Only  so  long  as  he  is  a 
land-owner.  Transform  this  land-owning  farmer  into  a renter,  and  you 
, have  transmuted  the  conservative  into  a radical. 

The  adoption  in  the  United  States  of  a cooperative  rnral  credit  system 
^ would  tend  to  eliminate  the  renter  by  winning  back  to  the  soil  the  land- 
owning farmer,  and  keep  ing  him  there.  And  it  is  in  the  light  of  what  ^has 
eo  just  been  said  that  we  should  interpret  the  motive  which  prompted  the  Pre- 
si  dent  to  utter  the  pregnant  words  : 

€ There  is  no  reform  in  which  I would  myself  feel  it  a greater  honor  or  privilege  to 
take  part,  because  I should  feel  that  it  was  a service  to  the  whole  country  of  the  first 
^ magnitude  and  significance...  This  is  our  next  great  task  and  duty  ». 


— 4 — 


Comments  and  Criticisms  to  Senator  Fletcher  on  his  Bill,  S.  2909. 


Dear  Senator  Fletcher : 


luLernational  Institute  of  Agriculture, 

Rome,  Italy,  October  7th,  1913. 


I am  in  receipt  of  your  letter  of  September  15th,  asking  for  further  comments  and  criticisms 
on  the  cooperative  rural  credit  measure  you  have  introduced  into  the  Senate  (S.  2909). 

You  say  : “ The  bill  which  I have  introduced  is  not,  as  I conceive  it,  subject  to  the  objections 
and  criticisms  offered  by  you.  ” 

A careful  reading  of  your  letter  gives  me  the  i mpression  that  you  favor  the  French  rural 
credit  system  partly  on  the  ground  that  as  France  is  a Republic,  the  Americanisation  of  the 
French  system  would  be  more  acceptable  to  the  American  people  than  would  that  of  the 
rural  credit  systems  .of  monarchic  countries. 

lyet  me  quote  from  your  letter ; 

“ I have  just  read  the  address  of  Mr.  Touis  Dop  to  our  Commission.  It  is  very  fine,  and  he 
certainly  presents  the  French  system  in  a very  forcible  way.  What  are  your  objections  to 
that  system  ? Wherein  do  the  local  societies  differ  from  the  Raiffeisen  associations,  and  wherein 
do  the  District  and  Central  Banks  differ  from  the  Dandschaft  ? France,  being  a Republic, 
and  in  view  of  what  Mr.  Dop  says,  the  French  plan  and  ideas  might  receive,  when  adapted  and 
modified  to  suit  our  conditions,  more  favor  here  than  any  other.  The  bill  which  I have  intro- 
duced, S.  2909,  it  seems  to  me  is  somewhat  Americanising  the  French  system.  I would  be  glad 
for  you  to  write  me  fully  after  you  read  the  bill  and  also  read  my  speech  to  the  Governors”. 


h 


To  WHICH  SHAFT  WE  GIVE  THE  PREFERENCE? 

Having  read  the  bill  and  the  speech  I will  now  proceed  with  my  comments  and  criticisms, 
varying  somewhat  from  the  consecutive  order  in  which  your  questions  have  been  placed. 

To  begin  with,  if  the  French  system  of  local  and  regional  banks  you  propose  would  give  us 
better  economic  results  than  the  German  Fandschaft,  then  we  should  give  the  preference  to  the 
French  method.  But  if  the  German  Fandschaft  would  give  the  better  results,  then  it  should 
have  the  preference,  for  it  seems  to  me  that  in  rural  credit  systems  the  comparative  value  should 
be  determined  by  the  dollar  gauge  rather  than  by  the  political  gauge. 

I will  now  try  to  answer  your  question  as  to  the  differences  between  the  leading  systems. 
According  to  the  “ Outline  of  the  European  Cooperative  Credit  Systems,”  by  the  International 
Institute  of  Agriculture,  they  are  as  follows : 

First : The  Raiffeisen  is  a system  of  personal  credit  for  short  time  loans  guaranteed  by  the 
collective  unlimited  liability  of  all  the  members. 

Second  : The  Schulze- Deli tsche  is  a personal  credit  system  for  short  time  loans,  mainly 
adapted  to  urban  conditions,  with  unlimited  or  limited  liability. 

Third  : The  French  system  of  local  and  regional  banks  is  operated  through  State  aid, 
and  is  a system  of  short  time  personal  credit  for  farmers,  mainly  through  discounting  promis- 
sory notes  ; also,  to  a limited  extent,  for  small  loans  on  mortgages. 

Fourth  : The  Fandschaft  is  a system  of  long  term  amortisable  loans  on  mortgage  security, 
on  which  bonds  are  issued  and  sold  in  the  open  market. 

The  way  to  Safeguard. 

In  considering  the  adaptability  of  these  various  systems  for  the  United  States,  we  are 
first  of  all  confronted  by  a psychic  factor  which  must  not  be  lost  sight  of.  The  psychic  factor 
that  I refer  to  is  the  condition  of  mind  operating  in  the  older  and  more  conservative  countries,  i 


— 5 


in  contradistinction  to  that  which  operates  in  newer  countries  under  more  liberal  forms  of 
government. 

lyet  me  illustrate.  Given,  say,  a rural  credit  system,  devised  and  operated  in  the  older  and 
more  conservative  countries,  and  the  first  thought  of  the  members  will  be  scrupulous  attention 
to  carrying  out  the  rules  laid  down  for  them  ; they  will  be  likely  to  proceed  on  in  their  duties 
along  those  lines.  In  newer  countries,  however,  under  more  liberal  forms  of  government,  the 
first  thought  is  likely  to  be  how  to  improve  on  the  details  and  on  the  system  as  a whole.  Pa- 
rallel to  this  thought  there  will  be  a searching  scrutiny  for  the  weak  spots  in  the  system,  when  the 
query  will  present  itself  to  some  : “ How  can  we  beat  the  game  ? ” To  this  some  may  object 
by  the  enquiry;  “Are  the  people  of  the  older  and  more  conservative  countries  more  honest 
than  those  of  the  newer  countries  under  more  liberal  forms  of  government  ? ” And  the  answer 
is,  no,  but  the  average  level  of  intelligence  is  higher  in  the  newer  countries,  minds  are  more 
active,  there  is  a quicker  grasp  of  the  laws  of  cause  and  effect,  of  means  to  ends,  therefore  they 
are  more  susceptible  to  avail  themselves  of  opportunities,  whether  for  good  or  for  evil. 

Realising  all  this,  the  founders  of  the  rural  credit  systems  for  the  United  States  should 
carefully  map  out  the  details  so  as  : 

First ; to  necessitate  the  fewest  subsequent  changes  ; the  routine  duties  should  be  so 
simple  that  they  can  be  readily  performed  by  the  average  farmer  ; 

Second  : to  ensure  that  unintentional  or  intentional  departures  from  the  prescribed  rou- 
tine can  be  so  readily  detected  by  all  concerned  and  so  promptly  counteracted  as  to  render  loss 
from  such  causes  practically  impossible; 

Third  : no  room  should  be  left  for  anyone,  no  matter  how  skilful  and  crafty,  to  “ beat  the 
game”. 

What  way,  then,  is  there  to  avoid  weak  spots,  to  ensure  the  regulated  operation  of  the  pres- 
cribed routine,  to  prevent  attempts  at  “beating  the  game  ?” 

Publicity  apt  kssentiau. 

And  the  answer  is  obvious:  the  system  should,  first  of  all,  be  so  simple  that  each  detail  be 
clearly  understood  and  easily  carried  out,  but,  above  all,  there  should  be  the  ^widest  possible 
publicity.  Take  it  in  the  case  of  the  appraisement  of  land- values.  In  Germany  these  are  safe- 
guarded through  the  control  of  a government  official  on  the  Board  of  Directors  of  the  Uand- 
schaft.  This  official  is  appointed  for  life  by  the  King.  In  addition  to  this,  the  other  Tandschaft 
officials  are  semi -government  employees  (see  page  41  of  the  second  edition  of  the  “ Outline  of 
the  European  Co-operative  Credit  Systems  ” by  the  International  Institute  of  Agriculture). 

In  my  booklet  “ The  lyandschaft”  (pages  20  and  21)  you  will  see  that  I have  suggested  an 
Interstate  Federal  Commission  as  a substitute  for  this  German  system  of  official  and  semi-official 
safeguard  ; but  the  point  that  is  most  insisted  on  is  the  need  for  the  widest  possible  publicity 
in  every  stage  of  the  routine.  It  is  therefore  proposed  : 

First  - that  public  hearings  be  held  by  the  lyandschaft  at  which  criticism  of  the  values 
assigned  to  the  lands  be  publicly  given  by  those  who  choose  to  appear  ; 

Second  - that  the  proceedings  at  these  hearings,  together  with  comments  and  opinions 
by  the  public  at  large,  be  transmitted  to  the  Interstate  Federal  Commission,  so  as  to  guide  and 
infiuence  its  action  ; 

Third  - that  the  Interstate  Federal  Commission  hold  public  hearings,  and  that  its  pro- 
ceedings and  decisions  be  printed  for  general  distribution. 

In  the  safeguarding  functions  set  forth  on  page  23  of  «The  Iyandschaft»  booklet,  I suggest 


f 


— 6 — 


that  the  Interstate  Federal  Commission  hold  the  lyandschaft  mortgages  in  trust,  and  issue  on 
them  the  partially  filled  out  bond  to  be  transmitted  to  the  borrowing  members  through  the  I^and- 
schaft.  In  this  connection  the  possibility  presents  itself  of  following  the  mode  of  the  Raiffei- 
sen banks  in  Bohemia,  by  utilising  the  post-offices  to  perform  the  functions  of  intermediary  clerk 
and  cashier. 

Now,  to  return  to  your  question  : « Wherein  do  the  (French)  district  and  central  banks 
differ  from  the  lyandschaft  ? » The  first  difference  is  this:  the  French  district  and  central  banks 
are  of  the  same  type  as  the  Raiffeisen  banks  ; they  are  for  loans  on  personal  security  for  small 
amounts  ; they  issue  no  bonds  ; whereas  the  Tandschaft  is  for  credit  on  the  security  of  land,  \ 

issuing  bonds  on  land-mortgages,  and  for  amounts  up  to  half  of  the  value  of  the  land  assetsg 

How  TO  Convert  Land  Values  into  Liquid  Assets. 

The  French  system  is  suited  to  the  needs  of  peasant  farmers;  whereas  the  Landschaft  would 
meet  the  needs  (as  in  Germany)  of  land-owning  farmers. While  there  may  be  some  limited  need 
in  the  United  States  for  loans  on  personal  security,  for  a system  like  the  Raiffeisen  or  the  French 
local  aild  district  banks,  by  far  the  greater  need  is  to  render  land-values  a liquid  asset,  there- 
by rendering  possible  the  issuance  of  bonds  on  mortgages,  as  is  done  under  the  Landschaft 
system.  Besides,  as  you  know,  the  French  local  and  regional  banks  obtain  their  operating 
capital  through  the  French  government,  from  the  Bank  of  France,  and  such  a State-aided 
system  is  paternalism  pure  and  simple. 

Now,  when  we  come  to  the  other  form  of  credit  in  France,  to  mortgage  credit,  we  are 
brought  up  to  the  fact  that  the  Credit  Foncier,  which  provides  it,  is  a profit  earning,  joint  stock 
mortgage  bank.  There  is  nothing  of  the  cooperative  principle  about  it,  not  any  more  than  in 
any  profit  making  joint  stock  bank  in  the  United  States  at  the  present  time. 

It  would  still  miss  the  Purpose. 

« But »,  you  may  ask, » if  the  Credit  Foncier  provides  mortgage  credit  in  France,  why 
would  not  such  a bank  do  so  in  the  United  States  ? » And  the  answer  is  that  even  if  it  would, 
it  would  still  miss  the  purpose  ; the  purpose  which  can  be  met  by  the  cooperative  Landschaft 
system,  as  shown  by  the  following : 

First : the  joint  stock  mortgage  bank  is  simply  a toll-gatherer ; it  gathers  money  from  the 
public  and  lends  it  out  at  interest.  It  lives  largely  on  the  difference  between  the  rate  it  pays 
the  public  and  the  rate  it  charges  its  borrowers.  Whereas,  through  the  Landschaft  the  farmers 
would  obtain  the  money  they  require,  as  in  Germany,  at  first  hand,  from  the  public  direct. 

Second  : while  on  the  one  hand,  it  is  in  the  interest  of  the  joint  stock  bank  to  foreclose 
mortgages,  thus  tending  toward  the  elimination  of  the  land-owning  farmer;  on  the  other  hand, 
it  is  in  the  interest  of  the  Landschaft  to  save  its  members  from  foreclosures,  thus  conserving 
the  land-owning  farmer. 

Third  : dealing  as  it  does  with  the  individual  farmer,  the  joint  stock  bank  does  not  tend 
to  the  upbuilding  of  cooperative  effort ; whereas  the  Landschaft  would  be  the  first  step  towards 
rendering  cooperation  in  production  and  distribution  economically  effective. 

Summarising,  the  case  stands  as  follows : you  favor  the  French  system,  but  we  find  that 
there  are  two  kinds  of  systems  in  France.  One  is  an  adaptation  of  the  Raiffeisen  system  for 
personal  credit,  for  which  the  Bank  of  France  (a  joint  stock  bank)  is  required  by  the  French  Go- 
vernment to  provide  the  working  capital ; the  other  is  the  Credit  Foncier,  a joint  stock  bank,  / 


— 7 — 


which  furnishes  mortgage  credit.  The  first  system  is  financed  through  pure  paternalism,  and 
would  be  impossible  in  the  United  States,  and  even  if  possible,  such  a personal  credit 
system  would  not  be  nearly  as  economically  effective  as  the  Uandschaft,  which  presents  no 
such  objections. 

As  for  the  Credit  Foncier,  that  is  not  cooperative  at  all ; it  is  merely  a joint  stock  bank 
^ lending  money  to  individual  farmers,  as  any  joint  stock  bank  in  the  United  States  may  now  do. 

Now,  in  your  proposal  you  seem  to  [have  combined  the  features  of  both  these  French 
systems,  the  personal  credit  and  the  mortgage  credit,  in  such  a way  as  to  involve  a com- 
I plicated  banking  system,  requiring  high  technical  skill  to  carry  it  out ; whereas  the  Uand- 

schaft  offers  a simple  working  system  for  the  effective  attainment  of  economic  results  much 
needed  in  the  United  States. 


The  Poeiticai.  Vaeue  of  the  Landschaft. 


El  conclusion,  let  me  quote  from  my  letter  of  Octber  2nd  to  Mr.  Charles  K.  McClatchy 
of  the  Sacramento  « Bee  ».  ' 

« On  the  face  of  it,  it  may  seem  that  the  Eandschaft  is  merely  a system  for  aiding  the  farmer 
to  get  a loan  in  a simpler  manner  and  on  better  terms  than  he  can  get  it  now.  But,  on  closer 
scrutiny, itwillbefoundthattheEandschaft  meansmuch  more  than  that.  It  notalone  means  the 
conservation  of  the  farmer,  the  land-owning  farmer,  but  it  means  the  conservation,  through 
him,  of  the  American  Republic.  The  day  before  yesterday,  while  President  Wheeler,  of  the 
California  University,  was  going  over  this  subject  with  me  in  the  American  Room  in  the  Institute, 
he  referred  to  the  prosperous  condition  of  the  American  fanner,  especially  of  recent  years  ; 
but  when  I drew  his  attention  to  the  facts  set  forth  by  the  United  States  Bureau  of  the  Census, 
showing  that  the  tenant  farmers  of  the  United  States  now  form  37  % of  the  total  number 
of  American  farmers,  that  the  increase  in  their  number  during  the  past  decade  was  16%,  it 
set  him  to  thinking  seriously.  Just  let  the  renters  multiply  at  the  same  ratio  for  the  next 
few  decades,  and  we  shall  have  this  new  world  phenomenon ; on  the  one  hand,  Eeland, 
now  being  freed  from  tenancy,  will  rise  from  the  lowest  economic  and  political  level  to  the 
normal  line  on  which  free  men  should  stand,  and,  on  the  other,  the  United  States,  as  the 
result  of  the  continued  increase  of  tenancy,  will  descend  from  the  highest  level  down- 
wards, when  the  American  people  will  receive  the  reward  of  those  who  sell  their  birth-right 
for  a mass  of  potage.  » 


Rome,  Italy,  October  i6th,  1913. 

You  inform  me  in  your  letter  of  September  23rd,  that  there  was  a meeting  of  the  United 
States  Commission  at  which  were  present  Dr.  Butterfield,  Dr.  Coulter,  Congressman  Moss  and 
yourself,  and  that  you  placed  my  communications  before  them. 

In  regard  to  my  proposal,  as  set  forth  on  pages  20  and  21  of  the  “Eandschaft”  booklet, 
on  the  matter  of  the  appraisement  of  land-values,  you  say : 

“ All  of  us,  I think,  agree  that  your  method  of  arriving  at  the  valuation  of  the  property 
mortgaged  would  scarcely  be  workable.  Borrowers  would  not  like  to  have  their  property  posted 
and  displayed,  and  its  value  subject  to  criticism  by  any  one  in  the  community,  and  so  much 
^ publicity  given  to  their  private  affairs.  ” 


t 

L 


— 8 — 


Is  the  Objection  Vaeid? 

I do  not  think  this  objection  is  either  valid  or  final,  for,  in  the  first  place,  the  very  founda- 
tion for  the  security  of  the  French  system,  which  your  bill  embodies,  indeed  of  any  and  all  the 
cooperative  credit  systems,  is  the  most  thorough-going  publicity  on  the  loans  within  the  li- 
mited sphere  of  their  operation. 

Take  it  even  at  the  present  time,  before  a farmer  can  obtain  a loan  on  a mortgage  he  must 
submit  all  questions  concerning  his  land  to  the  fullest  scrutiny  on  the  part  of  the  lender,  and  the 
mortgage  is  then  entered  on  the  public  records.  This  is  surely  publicity. 

“ But,  ” you  will  say,  this  is  limited  publicity,  and  what  is  set  forth  on  pages  20  and  21 
of  the  Eandschaft  booklet  is  unlimited  publicity  ; it  is,  as  it  were,  publicity  to  the  whole  world, 
and  constant  publicity  too,  so  long  as  the  mortgage  is  in  force.  ’ ’ 

Yes,  that  is  correct ; but,  in  the  case  of  a loan  made  by  the  local  money-lender,  there  is,  as 
it  were,  a monopoly  of  knowledge  ; the  monopolist  in  this  case  being  the  money-lender ; and 
what  is  the  result  ? Clearly  this  ; that  the  borrower,  the  farmer,  must  accept  the  terms  and 
conditions  of  this  monopolist  or  go  without  the  loan.  He  is  in  the  position  of  a purchaser  com- 
pelled to  buy  on  credit,  and  from  the  only  store  that  will  give  him  credit.  In  such  a case  com- 
petition does  not  enter  into  the  matter  at  all.  Whereas  in  the  Eandschaft,  under  the  general 
publicity  as  proposed,  there  would  be  many  competitors  to  furnish  the  loan,  and  not  alone 
willing  but  eager  to  do  so. 

Now,  as  these  competitors  would  come  from  all  parts  of  the  country,  the  result  would  be 
tliat  the  farmer,  as  in  Germany  under  the  Eandschaft,  would  obtain  his  money  at  from  3 to  5 
percent,  and  for  as  many  years  as  he  would  wish.  And,  mind,  the  interest  he  would  pay,  being 
on  the  amortisation  plan,  would,  at  the  same  time,  free  him  from  his  debt. 

Of  course  farmer  A would  have  the  right  to  object  to  the  publicity  which  all  this  would 
involve  by  remaining  outside  the  Eandschaft.  But  as  soon  as  he  would  see  farmers  B,  C,  D,  K, 
and  F getting  their  money  on  the  Eandschaft  plan,  as  soon  as  he  would  see  the  benefits  accruing 
to  them  therefrom,  he  would  be  likely  to  waive  his  scruples  as  to  publicity,  and  clamor  to  be 
admitted  to  the  Eandschaft.  What  I state  here  is  by  no  means  simple  theory ; it  is  hard  fact  as 
shown  by  the  operation  of  the  Eandschaft  during  the  past  150  years  in  Germany. 

* 

Shifting  the  Basis  of  Security. 

Were  we  to  attempt  other  means  of  establishing  land-values  than  this  proposed  general 
and  constant  publicity,  we  would  be  driven  to  rely  for  the  safety  of  the  bonds  on  a series  of  arti- 
ficial guarantees  ; and  the  statement  by  Geo.  K.  Holmes,  of  the  United  States  Department 
of  Agriculture  (see  page  21  of  the  “Eandschaft  ” booklet)  fully  confirms  the  fact  that  such 
guarantees  in  the  land-mortgage  bank  movement  of  30  years  ago  were  a delusion  and  led  to 
widespread  ruin. 

The  fundamental  defect  of  a proposal  providing  for  guarantees  is  that  it  shifts  the  question 
of  security  from  the  intrinsic  value  of  the  land  to  the  intrinsic  value  of  the  guarantor.  While 
such  a system  of  guarantees  may  be  effectively  applied  to  county  or  municipal  bonds,  or  to  bonds 
of  a railway  line  or  a great  industrial  plant,  it  can  not  be  effectively  applied  to  land  values  in 
heterogeneous  localities.  The  German  Eandschaft  system  has  no  such  defect.  There,  as  is 
here  proposed,  the  security  behind  the  bond  is  the  value  of  the  land  itself,  ascertained  in  such 
wise  as  to  leave  no  doubt  in  the  mind  of  anyone,  anywhere,  as  to  the  validity  of  the  valuation.  i 


— 9 ~ 


Before  proceeding  further,  I deem  it  important  to  refer  to  your  combination  of  the  personal 
credit  and  the  land  mortgage  bond  system.  You  propose  in  your  bill  that  these  two  forms  of 
credit  should  be  combined  in  your  rural  banks,  perhaps  as  different  departments,  but  still  as 
parts  of  the  same  system.  I think  this  would  be  a mistake.  In  my  letter  of  October  8th  to 
Dr.  Owens,  pertinent  to  this  question,  1 said : 

“ There  is  one  point  that  I would  like  to  emphasise,  and  that  is  the  need,  as  shown  by  Euro- 
pean experience,  for  keeping  apart,  in  any  system  that  may  be  framed,  the  two  forms  of  credit, 
the  personal  security  credit  and  the  land  mortgage  bond  credit.  You  cannot  have  a little  of 
the  Raiffeisen  and  a little  of  the  Tandschaft  mixed  together.  They  will  not  mix  any  more 
than  oil  and  water.  There  is  room  in  the  United  States  for  both,  but  I should  say  that  the 
proportion  would  be  about  as  follows  : lo  % for  the  Raiffeisen  or  its  derivatives,  and  90  % 
for  the  Dandschaft  ”. 

Mortgage  Banks  versus  the  Landschaft. 

And  now  for  another  point ; you  put  forward  the  question  whether  “ the  plan  of  the  mort- 
gage banks,  after  all,  may  not  prove  the  most  feasible  plan  through  which  a system  of  rural 
credits  can  be  established  in  this  coimtry  ”. 

I do  not  think  so.  If  the  satisfactory  working  of  the  land-mortgage  banks  in  Germany 
and  France  is  quoted  as  an  example,  we  must  bear  in  mind  that  they  are  satisfactory  there 
for  two  reasons  : 

First : in  Germany  their  rates  are  governed  by  the  competition  of  the  great  farmers’ 
cooperative  credit  associations. 

.Second  : the  land  mortgage  bank  of  France,  the  Credit  Foncier,  in  return  for  the  mono- 
Ijoly  of  the  land-mortgage  business  granted  it  by  the  Government,  may  only  charge  the  farmer 
a rate  of  interest  on  mortgages  fixed  by  national  law. 

These  two  actuating  features  secure  the  satisfactory  working  of  these  mortgage  banks  so 
far  as  the  farmers  are  concerned.  But  to  build  up  in  the  United  States  a number  of  heteroge- 
neous mortgage  banks  in  various  localities,  without  the  competition  of  the  cooperative  associa- 
tions, would  but  create  a number  of  local  monopolies,  whilst  a system  of  centralised  mortgage 
banks  would  be  likely  to  drift  toward  the  vortex  of  ruin. 

This  is  clearly  shown  by  Mr.  E-  M.  Shaw,  Secretary  of  the  Treasur5^  under  President  Mc- 
Kinley, from  whom  I have  previously  quoted,  who  points  out  that  in  the  disastrous  land-mort- 
gage bank  movement  of  thirty  years  ago,  centralised  mortgage  banks,  or  mortgage  banks  doing 
business  over  a wide  area,  were  largely  compelled  to  rely  on  indirect  information  in  the  matter 
of  the  value  of  appraisements,  and  that  in  floating  their  bonds  they  had  to  back  them  up  by  a 
series  of  guarantees,  and  when  the  day  of  reckoning  came  they  were  one  and  all  found  wanting. 


The  findings. 

And  what  conclusion  does  all  this  bring  us  to  ? 

We  find  that  mortgage  banks,  if  uncentralised  would  be  inadequate,  and  if  centralised 
would  be  dangerous. 

We  find  that  personal  credit  and  land-mortgage  credit  cannot  be  blended  into  one  system 
with  safety  or  with  profit. 

We  find  that  if  we  are  to  proceed  ahead  with  the  establishment  of  cooperative  rural 
credits,  unaided  by  national  subsidy  and  unaided  by  national  guarantee,  we  must  have  the 
^ Eandschaft  system. 


f 


We  find  if  there  is  to  be  a I^ndschaft  system,  whereby  land  mortgages  in  given  localities, 
in  given  States,  are  to  be  converted  into  long  term  bonds,  to  be  sold  in  the  various  parts  of  the 
United  States,  and  to  be  bought  as  an  investment  for  trust  funds,  for  the  funds  of  widows  and 
orphans,  that  this  may  only  be  done  when  safeguarded  b}'^  national  law  and  placed  under  na- 
tional supervision. 

But  will  not  the  Uandschaf  t be  opposed  by  the  banking  interests  ? Before  a correct  answer 
can  be  given  to  this  question  we  should  define  what  is  meant  by  “ the  banking  interests.  ” In 
the  first  place,  the  bankers  of  America  are  not  a homogeneous  body.  There  are,  on  the  one 
hand,  bankers  who  are  struggling  to  accumulate,  and,  on  the  other  hand,  bankers  who  have  al- 
ready made  their  accumulations.  It  is  from  among  the  first  subdivision  that  the  opposing  force 
may  be  expected,  for  they  will  fear  entrenchments  upon  their  profit  earning  domain  by  the 
cooperative  farmers’  Bandschaft.  But  no  opposition  need  be  feared  from  the  second  subdivision 
of  the  banking  interests,  from  the  bankers  who  have  the  accumulations.  Their  keen  business 
insight  will,  on  the  contrary,  prompt  them  to  aid  the  Bandschaft  movement,  for  they  under- 
stand that  the  prosperous  stability  of  the  American  farmer  is  the  safest  guarantee  for  pensist- 
ence  in  the  value  of  their  holdings;  they  will  realise  that  the  upbuilding  of  the  Bandschaft  wiU 
act  as  an  effective  insurance  for  the  maintenance  of  their  interests. 

Nationab  Law  and  State  Law. 

Your  two  main  objections  to  the  adaptation  of  the  Bandschaft  in  the  United  States  would 
however,  seem  to  be  the  following: 

(1)  To  permit  its  operation  under  national  law  there  would  have  to  be  concurrent  and 
uniform  State  laws ; 

(2)  As  the  Federal  Government  cannot  compel  the  States  to  enact  such  laws  there  can 
therefore  be  no  Bandschaft  under  national  law. 

Now,  if  these  objections  are  valid  against  the  Bandschaft  it  would  seem  to  me  that  they 
would  also  be  valid  against  the  local  national  rural  banks,  the  State  national  rural  banks,  and 
the  National  Rural  Bank  of  the  United  States  of  America,  as  proposed  in  your  bill.  But  I beUeve 
your  contention  is  not  valid  so  far  as  the  Bandschaft  is  concerned.  I agree  with  you  that 
the  Federal  Government  cannot  compel  the  States  to  enact  laws,  but  no  such  compulsion  was 
contemplated. 

The  proposal  is  that  the  Federal  Government  enact  laws  permitting  the  establishment 
of  Bandschafts,  under  charters  which  it  is  to  issue,  all  subject  to  certain  stipulations  and 
conditions. 

When  this  is  done,  it  will  then  be  incumbent  on  those  States  in  which  Bandschafts  are 
wanted  to  enact  such  legislation  as  may  entitle  the  farmers  to  obtain  from  the  national  govern- 
ment the  charters  requisite  for  going  ahead.  In  other  words,  the  State  in  which  no  Bandschaft 
would  be  wanted,  would  have  no  need  to  legislate  for  one  ; but  the  State  in  which  a Bandschaft 
would  be  wanted  would  enact  laws  enabling  the  cooperative  groups  of  farmers  composing  the 
Bandschaft,  to  comply  with  the  stipulations  and  conditions  for  proceeding  on. 

How  would  this  operate  ? Bet  us  see. 

Say  the  Federal  government  has  enacted  its  laws  ; that  would  be  sufficient  notice  for  the 
States  to  proceed  ahead.  But  supposing  that  no  State  proceeded  ahead  ? Well,  in  that  event, 
there  would  be  no  Bandschaft.  But  supposing  one  State  did  proceed  on  and  enacted  the  re- 
quisite concunent  legislation,  supposing  it  were  Iowa  ? Well,  if  the  Bandschaft  were  to  prove 
of  the  economic  value  to  Iowa  that  it  is  claimed  that  it  would,  it  would  not  be  long  before,  say, 
Wisconsin,  would  follow  suit ; and  so  on  all  along  the  line. 


II 


It  will  thus  be  seen  that  there  would  be  no  compulsion  or  coercion  in  the  matter  ; all  that  the 
Federal  Government  would  do  would  be  to  render  possible  the  lyandschaft  in  those  States  that 
wish  for  it. 


I How  TO  GIVE  Dynamic  Vaeue  to  Static  Assets. 

^ But  why  the  need  for  national  law  ? 

Because  it  is  proposed,  through  the  Eandschaft,  to  convert  the  farmers’  static  land  assets, 
f in  any  given  locality, into  a dynamic  asset  in  the  form  of  a negotiable  bond.  If  (through  publicity 

given  the  land  values  as  proposed  in  the  Eandschaft  booklet,  pages  20  and  21)  this  bond  be 
rendered  an  unquestionable  securit3%ever5rwhere,  and  at  any  time,  and  if  it  be  readily  transfer- 
able from  hand  to  hand,  it  will  then  sell  as  high  and  at  as  low  a rate  of  interest  as  Government 
bonds.  But  this  may  only  be  done  by  placing  the  Eandschaft  under  national  law'  for  the  pur- 
pose of  safeguarding  its  operations.  You  understand,  of  course,  that  in  all  this  the  Federal  Go- 
vernment is  not  to  be  held  financially  responsible,  is  not  to  guarantee,  it  is  simply  to  safeguard. 

As  you  know,  I am  but  repeating  here  what  I have  already  set  forth  many  times.  But 
in  saying  this  I would  not  have  you  understand  that  I am  getting  impatient.  I fully  realise 
that  it  takes  time  and  patience  to  change  opinions.  I can  see  that  3^ou  now  have  a far  dearer  and 
more  comprehensive  view  of  the  Eandschaft  than  you  had  a few  months  ago,  and  I feel  convinced 
that  it  is  onty  a question  of  time  when  you  will  agree  with  me  in  this  : that  if  there  is  to  be  co- 
operative credit  for  the  American  farmer  and  in  the  interest  of  the  American  farmer,  it  must  be 
had  through  the  Eandschaft  system  pure  and  simple.  That  system  can  be  Hade  to  provide 
not  merely  for  long  time  mortgage  credit,  but,  as  you  will  have  seen  from  pages  23  and  24  of 
my  booklet,  it  can  also  be  made  to  provide  for  short  time  and  for  open  account  credit. 

Close  study  will,  I believe,  show  that  the  Eandschaft  is  absolutely  the  safest  and  simplest 
and  most  advantageous  form  of  cooperative  credit  that  can  be  devised  for  the  American  farmer. 
The  moment  you  step  outside  of  this  system,  the  moment  you  have  the  farmer  enter  the  arena 
of  banking,  the  moment  you  set  up  the  local,  the  State  and  the  National  rural  bank  as  proposed 
in  your  bill,  that  moment  you  enter  the  domain  of  hazard.  You  enter  the  stagnant  swamps  of 
guarantee  regions;  guarantees  here,  guarantees  there,  guarantees  ever5rwhere,  but  security 
nowhere. 

And  right  here  you  ask,  how  can  the  Eandschaft  be  had  when  in  some  “{States  the  law  re- 
quires that  the  mortgage  will  have  to  be  foreclosed  by  suit  brought  by  a bill  in  equity,  where  a 
decree  is  finally  entered,  and  a master  is  appointed  to  ascertain  the  amount  due,  and  given  the 
power  to  advertise  the  property  for  thirty  days,  and  sell  it  at  a public  sale  the  first  Monday  in 
the  month,  and  then  report  the  sale,  and  have  it  confirmed,  and  after  its  confirmation  the  mas- 
ter makes  a deed  to  the  purchaser,  all  of  which  takes  from  three  to  six  months  time,  whilst  in 
other  States  a similar  procedure  is  required  , and  then  the  law  provides  that  the  mortgagor  will 
have  one  year  in  which,  after  the  sale  is  m.ade,  to  pay  up  the  debt  and  redeem  his  land  ” ? 

And  then  you  proceed  to  answer  thus  ; 

“ It  is  impossible  for  any  Federal  law  to  alter  or  change  these  State  laws  or  rules  of  pro- 
cedure ”. 

The  Law  and  the  Path. 

But  is  this  answer  final  and  conclusive  ? Bj'  no  means,  for  you  will  see  from  vrliat  I have 
already  said  in  this  letter  that  there  is  no  call  for  the  Federal  law  to  do  anything  of  the  kind.  If 
a State  wishes  to  persist  under  laws  which  are  antiquated  and  subversive  of  its  best  economic 
interests,  it  has  the  right  to  do  so.  And  so  long  as  such  laws  are  in  force  they  must  be  obeyed. 

® But  there  is  no  law  which  saj^s  that  the  law  may  not  be  changed,  and  so  long  as  this  is  the  case, 

V 

f 


— 12  — 


and  so  long  as  each  State  has  a legislature  for  the  purpose  of  modifying  and  changing  its  laws, 
so  long  does  that  set  aside  the  conclusion  you  have  arrived  at.  I^t  the  federal  laws  but 
lead  the  way  and  action  in  the  States  will  follow. 

The  very  genius  of  the  American  people  is  centered  in  this  : that  the  ideal  is  ever  to  the 
fore,  the  eternal  target  at  which  we  should  aim.  And  the  very  life  of  the  American  people 
is  involved  in  the  persistent  struggle  to  reach  this  ideal.  It  is  this  struggle  which  makes  for 
freedom,  which  evolves  progress. 

And  so,  my  dear  Senator,  we  need  have  no  fear  of  antiquated  laws  standing  in  the  way  when 
once  it  is  made  clear  that  they  obstruct  the  path.  I,et  it  be  clearly  perceived  that  the  lyandschaft' 
is  on  the  line  not  merely  of  economic  advantage  but  also  of  political  advantage ; that  it  is  fre 
from  admixture  with  the  baser  forms  of  socialism  and  populism ; that  it  is  on  lines  true  to 
American  ideal ; and  it  will  be  accepted  by  the  American  people  as  the  path  to  travel  on. 

Yours  very  sincerely, 

David  Lubin, 

Delegate  of  the  United  States, 

International  Institute  of  Agriculture,  Rome,  Italy. 


List  of  the^  Adhering  States  to  the  International  Institute  of  Agriculture. 


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5 

6 

7 

8 
9 

10 

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12 

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14 

15 

16 

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18 

19 

20 
21 
22 

23 

24 

25 

26 

27 


ADHERING  STATES 


Germany 

Argentine 

Austria 

Hungary 

Belgium 

Brazil 

Bulgaria 

Chile 

China 

Costa  Rica 

Cuba 

Denmark 

Ottoman  Empire 

Egypt 

Ecuador 

Spain 

United  States 

Ethiopia 

France 

Algeria 

Tunis 

Great  Britain  and  Ireland 

Australia 

Canada  

British  India 

New  Zealand 

Mauritius 


ADHERING  STATI<:S 


28 

29 

30 

31 

32 

33 

34 

35 

36 

37 

38 

39 

40 

41 

42 

43 

44 

45 

46 

47 

48 

49 

50 

51 

52 

53 


Union  of  South  Africa  . . . . . 

Greece 

Guatemala 

Italy 

Eritrea  and  Italian  Somaliland 

Tripoli  and  Cirenaica 

Japan  

Luxemburg 

Mexico 

Montenegro 

Nicaragua 

Norway 

Paraguay  

Holland  

Dutch  East  Indies 

Peru 

Persia 

Portugal 

Roumania 

Russia 

Salvador 

San  Marino 

Servia 

Sweden 

Switzerland 

Uruguay 


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I.  BULLETIN  OF  AGRICULTURAL  STATISTICS  (Monthly  - in  French,  English,  German  Spanish 
Italian). 

BULLETIN  OF  THE  BUREAU  OF  ECONOMIC  AND  SOCIAL  INTELLIGENCE  (Monthly, 
about  250  pages.  - Edition  in  French,  English.  German,  Spanish  and  Italian). 

BULLETIN  OF  AGRICULTURAL  INTELLIGENCE  AND  PLANT  DISEASES  (Monthly,  of  a*^ 
250  pages.  - Edition  in  French,  English,  German,  Spanish  and  ItaJan). 

4.  BULLETIN  BIBLIOGRAPHIOUE  HEBDOMADAIRE  (issued  every  Saturday). 

MONOGRAPHS  ON  AGRICULTURAL  CO-OPERATION  IN  VARIOUS  COUNTRIES  (vol.  i and  2 


